Why is cash flow important to your business?
Careful cash flow management allows your company to project the amount of cash that it will have on hand at any given time, project trends in cash inflow and cash outflow, and evaluate whether a shortfall or surplus in cash could potentially occur.
It is important to make sure your company isn’t running on empty because cash flow problems mean a business spends more money than it earns. Cash management is a key component in ensuring a company's financial stability and solvency. You must have good cash management systems to eliminate surprises related to cash by meeting the daily cash requirement at the lowest cost possible.
Here are top tips to beef up your business’ cash flow:
Review Financial Performance
Review financial performance regularly. Errors and consistencies in policies, procedures, systems, processes and controls are at high risks of being left unchecked if your company’s financial performance is not managed seriously.
Positive cash flow is preferred. Cash management helps to ensure that adequate levels of capital are available to your business for short-term needs such as inventory purchases. Get cash flow flowing by going over your business’ financial performance on a regular basis. Test and measure every aspect of your business to keep it afloat and running. Choose the correct accounting software and consider hiring a bookkeeper. Analyse your cash flow.
Standardise Payment Schedule for Accounts Payable
Standardising payment schedule provides more predictability for cash on hand. A coordinated payment process prevents unexpected payables each month that can affect your cash flow or create shortfalls.
One quick win in reviewing the financial performance of your business is learning about existing payment terms and taking advantage of it by extending certain payment terms. Always find new ways to keep costs low. Keep on top of payments.
Use your business credit card. Consider using your business credit card to pay suppliers and make purchases.
Or get a line of credit. Finding and using the best local credit union is also a great way to keeping your cash flow in check and regulating your payments. Stay friendly with lenders.
You can also use electronic payments to keep your payables up-to-date and reduce expenses.
Collect Accounts Receivable ASAP
Another quick win when a business’ financial performance is regularly checked is discovering past due accounts. Identify who are the recurrently late payers from your pool of customers and manage the problem areas. You can send invoices out immediately. Speed up receipt of cash or encourage customers to pay faster. Accelerate cash flow with mobile payment systems. Encourage use of payment cards. Factor receivables to meet present and immediate cash needs.
Eliminate the Risk of Delinquency or Dispute
More often than not, companies tend to focus more on sales than collection. With this, sales commissions end up being collected first before receiving payments. Remember that cash management is a process of ‘collecting’ and managing cash. As a business owner, it is paramount to position your collection efforts in the same way you manage your sales. Focus in collections as manically as sales and marketing. Make sure that your sales talents are aligned with your company’s cash goals, objectives and timing.
Improve Your Inventory
How can a business profit if inventories are not forecasted and planned? Having the right amount of supplies like stock or raw materials needed at a given time can prevent shortage and unforeseen expenses. Anticipate problems before they happen by having the right inventory on hand. Reduce carrying costs and avoid shortages as much as possible.
Assign an Accountant or a good Business Manager
Have the right people at the right job to manage and analyse the company’s cash flow. Retaining someone who understands business intelligence and the intricacies of cash management can lead to growth and development. Only a financial specialist can be on familiar terms with a company’s level of liquidity, its management of cash balances, and its short term investment strategies.
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